Mohamed El-Erian: Fed chief Jerome Powell is trying to break the market's central bank 'co-dependence'

  • Fed Chairman Jerome Powell's tone signals that he is trying to break the market's "co-dependence," Mohamed El-Erian says.
  • He's ending the notion that the Fed "is our best friend forever," adds the Allianz chief economic advisor.

Federal Reserve Chairman Jerome Powell's tone after this week's monetary policy meeting signals he's trying to break the market's "co-dependence" on the central bank, economist Mohamed El-Erian told CNBC on Friday.

Stocks sank Wednesday and Thursday following the Fed's latest interest rate hike and Powell's news conference.

El-Erian, chief economic advisor at Allianz, speculated Friday that Powell would probably react to the latest sell-off by saying: "It's about time the markets stand on their own feet."

The stock market initially rose Wednesday after the Fed raised its benchmark interest rate a quarter point, as expected, and lowered its rate hike projections for 2019 from three to two. But Wall Street plunged shortly after Powell's comments during his news conference suggested that the central bank would not slow its pace of hikes as quickly as some had hoped.

Powell, under criticism from many investors and President Donald Trump, is ending "this notion that the Federal Reserve is our best friend forever," El-Erian said in a "Squawk Box." interview.

The market rout that continued into Thursday saw the Dow Jones Industrial Average close down 470 points. The Dow and S&P 500 fell further into correction territory. The Nasdaq briefly dipped into a bear market. (A correction is defined as a decline in an asset or index of 10 percent or more from recent highs; a bear market is measured by a drop of 20 percent or more from recent highs.)

The Dow, S&P 500, and Nasdaq were on track for their worst week in nine months and their worst yearly performance since the financial crisis year of 2008. However, U.S stocks opened Friday's session slightly higher.

Powell could have eased some market fears by saying "nothing is off the table" concerning rate hikes and shrinking the balance sheet, El-Erian said, while warning that "bad market technicals" could become "bad economic technicals" if Washington isn't careful.

El-Erian, formerly CEO of investment giant Pimco, appeared on CNBC ahead of New York Fed President John Williams telling "Squawk on the Street" Friday that the central bank is open to re-thinking rate hikes next year. Stocks surged during the Williams' interview but then faded.